Disney Wants To Get Paid off Your Vices, but the Feds Want a Piece Too

Credit: Edited by Inside The Magic

It is impossible to watch a sporting event without seeing ads for sports betting. Since the 2018 Supreme Court decision legalizing sports gaming and making it a state decision, sports betting companies have inundated viewers with ads and statehouses with lobbyists seeking to legalize the once-forbidden act of gambling on sports.

Once states began seeing the revenue their neighbors were making with sports betting, everyone wanted to get in on the act, including The Walt Disney Company. Taking a page from his predecessor Bob Chapek, Disney CEO Bob Iger jumped at the chance to forge a deal with Penn Entertainment to create BET ESPN.

In the deal announced last summer, Penn Entertainment wrote EPSN a $1.5 billion check plus another $500 million in stock options for using the ESPN name in the new online sports betting platform. The site has since gone live in 18 states.

However, there is a slight catch. BET ESPN is not legal in any state where The Walt Disney Company is headquartered.

Gambling is still illegal in California, home to Disneyland, and Florida just recently approved sports betting, but BET ESPN isn’t legal there. It also isn’t legal in Connecticut, ESPN’s home state.

But just as Disney entered the sports wagering game, states realized they weren’t making enough taxes off this vice. Last year alone, some estimates say that sports betting companies made $11 billion in profit, which states making a fraction of that amount.

So now, states are starting to take notice and changing the tax rates on gambling.

Follow the Money

In New York, sports gambling is taxed at 51 percent. However, just across the river in New Jersey, it’s only taxed at 24 percent. No matter the tax, sports gambling companies pass that amount to the consumer.

New York collected $862 million in taxes on sports betting last year, and according to the Washington Post, other states are starting to notice its tax rate and revenue.

In New Jersey, where BET ESPN is legal, state legislatures are considering raising the state tax on sports gambling to 35 percent. Illinois is also considering a jump from 15 percent to 35 percent, and Ohio is moving from 10 percent to 20 percent.

These are three of the biggest states where BET ESPN is legal, which could seriously reduce Disney’s already slim profit margin for sports gambling.

According to the Post, a bookmaker collects about $9 for every $100 wagered. That money is then used for licensing fees and advertisements. The profit margin is razor thin, and most sports gambling companies lose money.

The industry is dominated by two massive sites: FanDuel and DraftKings. Together, they control 75 percent of all sports gambling in the country.

If The Walt Disney Company wants to break that monopoly, it will have to find a way for BET ESPN to be in more than 18 states and have the kind of ad blitz for sports fans that FanDuel and DraftKings have. The states raising the gambling tax could crush Disney’s hopes of being a huge moneymaker.

Raising the taxes on sports gambling and forcing the gambling sites to pass that cost onto the consumer also has an intended consequence: states hope people will gamble less. Problem gambling has become just that, a problem, with one percent of the population having a gambling addiction.

States hope that by instituting these additional fees, fewer people will gamble, but that could be wishful thinking.

And let’s not forget about the Federal Government. The Feds only get $.25 for every $100 wagered in America. It is only a matter of time before that number goes up drastically.

So, with a relatively new sports gambling venture and states and the federal government closing in on them, Disney may have picked the wrong time to enter the gambling arena.

It remains to be seen if ESPN can somehow turn this into a moneymaker for Disney.

What do you think about Disney entering into sports betting?